Malaysian Prime Minister Najib Razak (Bloomberg News)
According to The Wall Street Journal, upcoming national elections seem likely to hinder sorely needed economic reforms in places like India and Indonesia. Not so in Malaysia, where Prime Minister Najib Razak’s resounding victory in general elections last May gives him the leeway to push a reform agenda.
Mr. Najib’s 2014 budget presentation last Friday centered on reforms he believes will help balance the nations’ books by 2020. Key among them is a 6% tax on goods and services that Mr. Najib has talked of for years but never had the political clearance to push through – until now.
He also scrapped a sugar subsidy for consumers and announced the government will move to a system of targeted subsidies where only the poorer members of society would benefit from cheaper food items, cooking oil and fuel.
The government says targeted payouts will lower the total subsidy bill – which makes up about 18% of government spending – by some 15.6% next year. Mr. Najib said next year’s subsidy bill will fall to 39.41 billion ringgit ($12.6 billion) from this year’s 46.70 billion ringgit ($14.9 billion).
Mr. Najib forecast a budget deficit of 3.5% next year, down from a projected 4.0% this year.
Opposition parties warned they would protest the new goods-and-services tax – which in any case will exempt basic food items and essential services — but analysts and ratings agencies generally welcomed the budget. So too did investors, who sent the ringgit to a four-month high of 3.1425 against the U.S. dollar Monday, while the yield on the benchmark 10-year government bond hit a three-month low of 3.59. Stocks were little changed.
The Asian Century Report 